Red Robin (RRGB) Tops Q1 Earnings, Lags Sales, Cuts View

Red Robin Gourmet Burgers Inc. (NASDAQ:RRGB) reported mixed first-quarter 2016 results with earnings outperforming the Zacks Consensus Estimate but revenues missing the same.

However, the full year sales and comps growth guidance were lowered which led to more than 18% decline in share price.

Earnings Beat

Red Robin’s adjusted earnings of $1.27 per share beat the Zacks Consensus Estimate of $1.10 by 15.5%. Further, earnings jumped 15.5% year over year because of higher revenues and growth in adjusted EBITDA.

Behind the Headline Numbers

Revenues of $402 million missed the Zacks Consensus Estimate of $416 million by 3.27% but grew 1.8% year over year backed by new restaurant openings.

During the quarter, restaurant revenues went up 2.1% year over year to $396.7 million. Franchise royalties and fee revenues, however, decreased 16.2% to about $5.36 million.

Company-owned restaurants’ comps declined 2.6%, worse than prior-quarter comps growth of 2.1% due to weak traffic trends. A 4.1% decline in traffic offset a 1.5% increase in average guest check.

Restaurant-level operating profit margin decreased 50 basis points (bps) to 22.5%. It included 80 basis points benefit from lower health care and workers’ compensation costs.

Adjusted EBITDA rose 8.5% to $51.0 million from $47 million in the first quarter of 2015.

2016 Revenue Guidance

Red Robin lowered its total revenues growth guidance for 2016 from the range of 8.5% to 9.5% to 8% in 2016.

The comps growth guidance was lowered to flat to slightly negative from the previous expectation of an increase in low single digit range.

Adjusted EBITDA in 2016 is likely to range between $150 million and $155 million.

Restaurant-level operating profit margins are expected to rise 10 bps as lower cost of goods will be offset by higher labor costs.

Capital expenditures are expected to be roughly around $190 million including 13 restaurants acquired in the first quarter. The company also plans to remodel at least 70 Red Robin restaurants in 2016 as part of its brand transformation initiative and relocate three outlets.

The company is also looking to boost sales in 2016 by improving the menu mix. The focus is mainly on providing different varieties of beer at its restaurants. It is believed that a combination of a burger backed by beer will boost sales. It is also expected that if different varieties of alcohol are served, it would have a positive impact on traffic.

Red Robin currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Better-ranked stocks in the same sector are Darden Restaurant Brands International Inc. (NYSE:QSR) , Carrols Restaurant Group, Inc. (NASDAQ:TAST) and Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) . All these stocks sport a Zacks Rank #1 (Strong Buy).